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Unformatted text preview: onomic competition. According to Robert Mabro (1992), both of these answers are
inadequate.The OPEC answer is based on the politics of pure coercion and institutionalism,while the market answer accepts oil as any
other commodity and assumes that it is controlled exclusively by spot and futures markets. These explanations are incomplete. 187
Last printed 9/4/2009 7:00:00 PM Oil DDW 2012 1 No Flooding – Price Stability 188 Oil DDW 2012 1 Saudi Arabia wants a moderate price on oil to maximize growth
Pierce, Ph.D. candidate at the School of Public Affairs, University of Colorado, 12
Jonathan J. Pierce, Ph.D. candidate at the School of Public Affairs, University of Colorado, Denver, 1-5-12, [“Oil and the House of
Saud: Analysis of Saudi Arabian Oil Policy,” Digest of Middle East Studies Volume 21, Issue 1, pages 89–107, Spring 2012,
http://onlinelibrary.wiley.com/doi/10.1111/j.1949-3606.2012.00128.x/abstract] E. Liu
A single producer or cartel of producers does not set the price of oil, but rather the price is set by market expectations. “Supply and
demand does not respond significantly to high or low prices. What they do respond to is price expectations” (Stevens, 1997b, p. 20).
The price is determined by the beliefs of various market players as they interact in an essentially competitive market influenced by
shifts in residual supply and demand. The Saudis do not want “low” or “high” oil prices for prolonged periods. The Saudis fear that
low oil prices over time will affect their own economic growth, spending on social services, and investment in oil as well as other
industries. On the other hand, they fear that high prices over time will affect the economies of oil-importing countries by retarding
growth, leading to an adverse effect on oil demand and the growth of the oil industry within Saudi Arabia. This has led the Saudis to
seek stability in the price of oil and act as a moderator in the oil market. OPEC The Saudis belong to the international oil institution,
OPEC. OPEC currently has 11 members, who combine to control an estimated 40% of the world’s proven oil reserves. The
organization creates binding production agreements among its members in an attempt to steer or at least influence the price of oil.
However, the Saudis have repeatedly acted independently of OPEC to benefit consumer countries by stabilizing world oil supplies and
maintaining a “moderate” target price range (Cordesman,2003).Higher oil prices may offer greater profits for OPEC as a group, but
lacking mutual trust, the members cannot exploit the unstable oil market (Adelman,1995).The assumption that OPEC as an
organization seeks to maximize income for the whole group is not true because medium- and long-term policies differentiate between
members because of varying reserves and production levels (Mabro, 1992). 189
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Al-Saleh, senior research fellow at the Insead Innovation and Policy In...
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